This article first appeared in The Edge Malaysia Weekly on July 29, 2024 - August 4, 2024

The 48% slump in Nestlé (Malaysia) Bhd’s net profit for the second quarter ended June 30, 2024 (2QFY2024), from a year ago is unprecedented even when compared with the period under lockdown during the Covid-19 pandemic.

The main reason for the poor performance was the drop in domestic sales, the company said, reflecting the “current environment of subdued sentiment, and constrained purchasing power”.

Revenue for the quarter fell 13% to RM1.5 billion from RM1.75 billion a year ago. Coincidentally, turnover for 2QFY2023 was a historical high for the fast-moving consumer goods, or FMCG, group.

For the cumulative six months ended June 30, 2024 (1HFY2024), revenue and net profit fell 8% and 23.5% respectively.

In its review of the 1HFY2024 period, Nestlé attributed the drop in revenue to “subdued consumer sentiment and cautious spending observed during the Chinese New Year and Hari Raya festive seasons”. Profitability was also affected by high input costs and a weak ringgit.

In a report by a research house, it was noted that Nestlé’s results were also affected by consumers switching to local brands, alluding to the ongoing campaign to boycott certain Western brands, following Israel’s attack on Gaza.

Certainly, local brands are taking the opportunity to introduce new products and gain market share.

Just this month, Farm Fresh Bhd launched its chocolate-flavoured malt beverage Farm Fresh Choco Malt, which is available in powder and ultra-high-temperature (UHT) formats.

Nestlé’s Milo is one of the most popular brands in the segment. So far, any erosion in Milo’s market positioning as a result of the ongoing boycott has been anecdotal. This appears to have been borne out by the poor numbers in the 2QFY2024 financials, although Nestlé did not disclose whether Milo sales had been affected.

Nestlé expects the challenging conditions to remain for the rest of the year, with growth returning by the first half of 2025 at the latest.

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.